How To Avoid Going Bankrupt

2019/02/25

There are plenty of things you can do to avoid going bankrupt. Most of the times, when debts become too heavy to be paid off, the debtor consider filing for bankruptcy protection.

Here, it is very important for you to understand that when an individual goes bankrupt, he or she has to face an array of harsh financial consequences. It is like starting your financial life all over again right from scratch. Bankruptcy brings your credit score to zero and stays on your credit report for seven to ten years, depending upon the type of bankruptcy granted by the court.

That is the reason why it is always recommended to look for better alternatives that are less damaging to your finances. Following is a brief rundown on some of the basic steps you can take not just to avoid bankruptcy but also to protect and improve your credit situation.

Contact Your Creditors

If you want to avoid going bankrupt, the first thing you should do is to contact your creditors and discuss your debt situation with them. It is very important for you to keep in mind that even your creditors do not want you to file for bankruptcy. In most cases, where court grants bankruptcy to a debtor, the creditors also have to bear a great deal of loss.

When you go bankrupt, your creditors are very much likely to receive a very small amount of money as compared to the actual debt you owe to them. Besides that, creditors usually hate to go through complex legal procedures, as legal proceedings are highly time consuming. They always prefer an out-of-court settlement.

Therefore, if you contact your lenders and explain the kind of financial hardship you are going through, you are very much likely to be offered a more favorable and affordable repayment plan. Whether you are falling behind on mortgage, car loan, personal loan, payday loan, credit card debts or any other type of debt, you are strongly recommended to contact your lender immediately. The sooner you discuss your problems with them, the higher are your chances of getting a favorable response from them.

Do Not Avoid Calls And Emails From Your Creditors

When people struggle with debt repayments, they often tend to ignore facing their creditors and stop responding to emails and even phone calls from them, which is the worst thing to do in a situation like this. Always remember, your creditors can actually help you avoid going bankrupt. But, for that, you must respond to their calls and emails promptly.

In most cases, creditors themselves take initiatives and provide you with options on how you can manage and settle your debts in an affordable manner. The emails and the letters they send you may contain details regarding the same. For example, they may consider suspending your payments temporarily and allow you to pay just the amount of interest for a few months until your finances get back on track. Likewise, they may provide options on how to consolidate your debts or lower your monthly payments (such as, through refinancing).

Create A Proposal For A New Repayment Plan That You Can Afford

While you are trying to avoid going bankrupt, you need to review your financial situation thoroughly. Before you prepare a proposal for a new, more affordable repayment plan, you must first create a budget plan on paper. Budgeting is the best way to ensure a financially disciplined life. It gives you better control of your money. It shows you some easy ways on how to save extra money to pay off your debts faster.

Just make sure that your budget plan is a very practical and realistic one. For example, following a strict budget does not mean you should not spend on entertainment at all. In fact, a good budget plan must always save at least 5% to 10% of your regular monthly income for entertainment.

When you share this budget plan with your creditors, it will be very easy for you to convince them that you are serious about debt repayments and that you are working hard in this direction. Prepare a proposal accordingly. Lenders often reject the first proposal and they instead offer you a counter proposal. Before you accept a new repayment plan, make sure you can practically afford the monthly payments.

Get Help From A Credit Counselor

People often get overstressed because of mounting debt problems and find it very difficult to make sensible financial decisions on their own. In such cases, you can consider hiring a reputable credit counselor. The credit counselor will do a thorough review of your debt and financial condition and then offer you suggestions accordingly on how you can avoid going bankrupt. They will educate you about the legal and financial options you have. They will also help you prepare a successful budget plan. In fact, they can even talk to your lenders on your behalf and negotiate a better, more affordable repayment plan for you.

Consider Consolidating Your Debts

Debt consolidation can also prove to be a good option to manage your debts more efficiently. For example, you can consider cash-out mortgage refinancing, which allows you to refinance your mortgage in a way where you borrow a certain amount of money in cash while you get a chance to repay the new increased amount of mortgage with reduced monthly payments; in general, it means a longer repayment period.

You can use the extra money thus received to pay off other debts. Likewise, if you are struggling with credit card debts, you can consider borrowing a new personal loan and paying off the credit card dues with the money thus received. The problem with credit card debts is that they charge interest at an extremely very high rate as compared to the rates charged on other conventional loans.

With this strategy, you get a chance to convert your high-rate debts on multiple credit cards into a single low-rate personal loan. Furthermore, if none of the options seems to work, you can also consider signing up with a debt consolidation company.

A debt consolidator works as a mediator between you and your creditors. You pay a consolidated single monthly payment to them while they manage your debts on your behalf. Overall, if you keep the above suggestions in mind and plan and implement your strategies accordingly, you can easily avoid going bankrupt. You will regain control of your finances and will be able to manage your debts more efficiently.

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